The Response of US Equity Values to the 2004 Presidential Election

Abstract

This paper analyzes changes in US equity values around the 2004 presidential election. At 4:00 PM on November 2, trading in George Bush’s victory contract on Tradesports.com implied a probable defeat; early November 3, Bush was the winner. Because no other important event occurred in that interval, the surprising outcome likely caused the percentage increases in the equity market index and the equity indexes of almost all industry groups. Statistical tests reveal that many of these increases are significant in comparison with the distributions of the indexes’ daily returns over eight nearby, non-election years; some indexes posted increases that were comparatively quite large. These results should convince investors and managers that at least some elections can substantially influence their share prices.